Department of Trade and Industry 4th quarter 2010/11 performance

Standing Committee on Appropriations

10 August 2011
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Department of Trade and Industry presented its expenditure and performance report for the 4th quarter of 2010/11. Much of the underspending was in relation to transfers to other entities, which had not yet been effected. The Department confirmed that its total underspending was 6.42% of the budget, but that if the underspending in the Automotive Production and Development Programme was excluded, this would result in only a 2% budget variance. The Department also noted that the Auditor-General had already provided an unqualified audit opinion for the 2010/11 financial year. Other instances of underspending were in relation to officials who were based abroad at South African embassies and trade missions, and whose invoices had to be sent via the Department of International Relations and Cooperation, which often resulted in substantial delays. In answer to later questions from Members, the Department confirmed that this system would be looked at again. The current vacancy rate of 13% also affected the Department’s work, although it was trying to bring this down, in the short term, to 10% and eventually to drop it to lower than 5%. Incentives were also paid not on an upfront basis, but on the claim-back system, once the private sector had actually made the investments. The underspending in the automotive industry resulted from a change in policy. Although South Africa had previously given incentives to exports, this had sparked complaints from other trading nations, and the incentives were then put into the production side.

Members pointed out that the underspending in communication and marketing was possibly self-defeating as these were key to attaining job creation and marketing. They asked if particularly interventions could be made to assist the ostrich industry, and noted that the Department had previously assisted, but that factors outside its control, including the exchange rate, had affected this industry, and its primary focus was now on the second economy, small business development and continuing support for large industries. Members asked why the vacancy rate was so high, noted that most vacancies were at middle-management level, where competition from the private sector was fierce, and asked what specific incentives, including bursaries, were offered, and what targets were set for reduction of vacancies. They also enquired about the developmental agencies under the Department’s jurisdiction, asked if they were reaching those who needed their services, and cited disquiet about the level of services at the National Empowerment Fund. Members noted that one positive aspect was that this Department was clearly monitoring the fulfillment of obligations before making transfers, but appealed that invoices should be paid timeously. The Department was also reminded to submit presentations to the Committee in advance of the meetings.
 

Meeting report

Department of Trade and Industry 4th quarter 2010/11 performance report
Chairperson’s opening remarks
The Chairperson said the Committee had requested to meet with the Department of Trade and Industry (dti or the Department) to explain the under spending that was apparent from its 4th quarter 2010/11 expenditure report. He had read through the presentation document, and it appeared that much of the under spending related to transfers that should have been made to other entities, but which were not yet effected. However, there were also other areas of under spending where the Department had direct control, and these too must be discussed.  that had not yet been effected, but there were also many areas of under spending that the Department had direct control over that could be discussed.  

He added that although the Standing Committee had invited the Portfolio Committee on Trade and Industry to participate in the meeting, it seemed that there was a communication error, as no members from that Committee were present.

Department of Trade and Industry presentation
Mr Lionel October, Director General, Department of Trade and Industry, said that he would deal with the last quarter of 2010/11 expenditure report as requested. However, he did wish to add that the Auditor-General (AG) had already expressed an unqualified audit opinion on the 2010/11 Annual Financial Statement, and this would be reflected in the presentation.
 
Mr October noted that, in total, the dti had underspent 6.42% of its budget allocation for 2010/11. Although this may seem to be a small percentage, it did represent a significant amount of money. The Department’s activities could be divided in three main areas of regulation, industrial development and empowerment of marginalised groups.

Most of the underspending related to two financial categories: namely, Enterprise Organisation programmes, and transfers to various other entities. The bulk of the underspending related to transfers to the Automotive Production and Development Programme. He noted that when the dti assisted industries, the main investor always remained the private sector, and government only facilitated growth in industries. This was reflected in the first quarter of the financial year, where the Department had secured R14 billion investment in the automotive industry from the private sector.

He explained that there were also delays in making payments to entities abroad. He explained that the dti had many officials based in South African embassies and trade offices abroad. These officials sent their expenditure invoices to Department of International Relations and Cooperation (DIRCO), who then forwarded them to the dti. This often resulted in delays before dti received the proof of expenditure invoices, with consequent delays in making payment on those invoices.

Mr October then explained that in Europe, incentives or subsidies were given annually, but in South Africa dti had to take a very targeted approach to incentives, in order to maximise their impact. Incentives were once-off payments and they would only be paid if the Department saw real investment from the private sector. The Department ensured that 90% of investments were always made by established companies, or and 30% in the case of small businesses. In addition, the dti would only pay the invoices on a claim-back basis, after companies had made the initial investment themselves. This was done to ensure that government money was properly spent.

The Chairperson interjected to ask why there was so much under spending in the automotive industry. 

Mr October repeated that the bulk of the underspent amount was in the Automotive Production and Development Programme. If this was excluded from the total, then the dti would have only 2% variance from the budget allocation. He explained that although in the past, the dti had incentivised the export of South African-produced automobiles, this had been challenged by the Australian government, who claimed that these incentives harmed their interests. The Department then focused its incentive programme on the local production of automobiles, including the lucrative vehicle component manufacturing sector.


Mr October said that another factor contributing to underspending was the vacancy rate in the Department, which remained high, at 13%, despite recent progress in reducing that vacancy rate. The Department wanted to reduce that vacancy rate to under 5%. Within the Department 97 vacancies were filled internally through promotions. Although this recognised internal talent, it also naturally left a different 97 posts vacant lower down the departmental ranks. He added that in the past, posts were sometimes left vacant on the books for extended periods. However, now the Department was clamping down on this practice, by imposing a three month “use it or lose it” policy. He said this would reflect actual requirements and reduce superfluous vacancies in the Department.

Discussion
Mr J Gelderblom (ANC) asked why the Department had underspent its budget allocation on Communication and Marketing, pointing out that these were key elements in attaining objectives such as job creation and empowerment.

Mr Gelderblom also noted that the ostrich industry had been experiencing difficulty, and many farmers were leaving their farms, resulting in unemployment to their former farm workers. He asked what the Department could do to help the ostrich industry.

Mr October said exports from the ostrich industry had been negatively affected by the current unfavourable exchange rate, which was entirely beyond the control of the ostrich industry, as well as price increases on fuel and other commodities. The Department had previously assisted in the international marketing of ostrich products, but would also consider additional ways in which it could help vulnerable industries such as the ostrich industry. However, he made the point also that the Department wanted to focus more on the second economy and small business development, whilst also continuing its support for larger industries such as the automotive industry. 

Ms R Mashigo (ANC) asked what level of posts had remained vacant in the Department. She was sure that entry level posts could be filled with relative ease.

Ms Sarah Choane, Deputy Director General, Department of Trade and Industry, said that most of the vacancies were in highly skilled middle-management posts, where the Department had to compete for scarce skills against the private sector. Candidates for these posts were often in their thirties, and were considered highly mobile, which meant that it was a challenge for the Department to retain staff. She added that the Department took 2.7 months, on average, to fill a post, so this fell within the three months deadline the Department had imposed on itself.

The Chairperson said that, as a matter of policy, this Committee required all departments to forward copies of their presentations to the Committee at least three days prior to the date of the meeting, so that Members could study and familiarise themselves with the matters. Members of the Committee had not managed to get the Department’s presentation until late in the afternoon of the previous day which did not give them sufficient time to deal with the issues in depth.

Mr October apologised for not forwarding the presentation three days in advance.

The Chairperson asked whether the Department had set a target for reducing vacancies by 2012.

Ms Choane said the Department was working closely with universities to ensure that the proper calibre skills were developed, but added that these were scarce skills, and the vacancies were occurring at the more senior level. The Department was aiming, in this year, to reach a target of 10% vacancies.

The Chairperson asked which developmental agencies fell under the Department’s jurisdiction.  

Mr October mentioned some of the developmental organisations, including the National Empowerment Fund (NEF) and small industry development organisations. He added that Khula, to which there had been reference by the Chairperson earlier, now fell under the jurisdiction of the Department of Economic Development.

The Chairperson said he had heard complaints about the level of services provided by NEF, whose staff were allegedly unsympathetic and insufficiently helpful. Mr Sogoni himself had tried to contact the NEF and experienced difficulty getting through to the appropriate person. He too had the impression that its staff generally seemed indifferent to providing a service to the public. 

Ms Mashigo asked how effective the Department’s various developmental agencies were in reaching the communities that needed their services.

Mr October said he was aware of these challenges, and that the Department was working on rapid response mechanisms to queries from its clients. He reiterated that the Department wanted to focus its efforts on townships and other areas most affected by the challenging economic climate.

The Chairperson asked why such a large number of receipts or invoices were outstanding, when the State President had recently said that all invoices should be paid within a 30 day time period. He said that often he heard of complaints that a department would not pay on time, but the department would respond that it would not pay without having received the proper invoices.

Mr October said the Department noted the concerns raised in regard to invoices. Specifically in the case of the overseas invoices, he reiterated that the Departmental officials based abroad sent their invoices to DIRCO first. DIRCO would then forward them on, often resulting in delays, to dti. He agreed that it was not a very efficient system, and the Department often received invoices months after they had been issued. In future, the dti would be looking at setting up different systems, perhaps including invoices being sent simultaneously to the two departments.

The Chairperson said it was clear that the Department did not simply transfer funds on request, but also monitored whether companies had fulfilled their obligations. This would explain the less than complete transfer rate.

Mr Gelderblom asked what percent of bursaries were made available for the Department’s own staff, and what other measures were taken to ensure staff retention. 

Ms Choane said the Department had signed agreements with staff who received assistance, and this created binding obligations on the recipients. The dti was also implementing other various staff retention programmes.

The meeting was adjourned. 

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